The market ended mixed on Thursday after a strong start but spent much of the session on the south side before ending the day pretty much flat. The bulls were in a good mood after yesterday’s initial claims number but the bears were prowling after some tempered outlooks from corporate America.
We mentioned yesterday that 3M (MMM, $85.07, down $5.30) was weighing heavy on the Dow but the blue chips were unable to overcome 3M’s 6% pullback. The index fell a dozen points to finish at 11,113 after trading in a range 11,052-11,179. Once again, the index met resistance in the 11,200 area while 11,000 is proving to be solid support. If the index can clear 11,200 and hold into the weekend it would be a good sign for the start of next week.
The S&P 500 added a little over a point and settled at 1,183 after touching a low of 1,177 while peaking at 1,189. We are waiting for the index to clear 1,200 for a possible run up to 1,300 by Christmas.
The Nasdaq, the first to clear our top-end targets, stayed above the 2,500 level and gained 4 points to close at 2,507. Tech should do well after Microsoft (MSFT, $26.28, up $0.23) came in with better-than-expected earnings. Our year-end target is 2,600-2,700 for the index if 2,500 holds over the next couple of weeks.
Mr. Softie reported earnings of $5.4 billion or $0.62 a share, versus $3.6 billion, or $0.40 a share, in the year earlier period. Revenue jumped 25% to $16.2 billion while analysts had been looking for earnings of $0.55 a share on sales of $15.8 billion in the quarter.
Meanwhile, Sketchers USA (SKX, $19.33, down $4.30) fell nearly 20% yesterday after missing Wall Street’s expectations and saying they had an inventory buildup. The company reported a profit of $36 million, or $0.74 a share, versus $24.5 million, or $0.52 a share, in the year ago period. Revenue came in at $555 million. Analysts were expecting Sketchers to earn $1.02 a share, on revenue of $572 million.
We knew there were troubles at the shoe maker from our channel checks and we were calling for a drop below $20 back in late September. We used some put options to play the pending breakdown but we ran out of time with our October play.
Like a tide that lifts all boats, shares of Sketchers rallied after Nike (NKE, $81.21, up $0.18) reported strong earnings a few weeks ago. At the time we went short, Sketchers was at $21 and like Nivana…we smelled teen spirit. However, after Nike announced their numbers, shares of Sketchers ran to $26 by mid-October and the trade never recovered.
We point this out because options are time sensitive and sometimes your best homework doesn’t always pan out in the option world because of other forces. Although we usually don’t like to follow a negative trade with an option on the same stock but we should have kept Sketchers on our radar.
The November 20 puts (SKX101120P00020000, $1.30, up $1.00) gained 333% on Thursday and were going for 30 cents heading into Wednesday’s close.
On the flip side, Deckers Outdoor (DECK, $53.99, down $0.74) came in with better-than-expected numbers and was pushing $57 in after-hours last night.
As we head to press, futures are pointing towards a flat open. Dow futures are up 3 points to 11,052 while the S&P futures are down a point to 1,178. The Nasdaq 100 futures are lower by 2points to 2,128.